Growth of the Circle K Corporation a Convenience Food Store Chain
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University of Montana ScholarWorks at University of Montana Graduate Student Theses, Dissertations, & Professional Papers Graduate School 1976 Growth of the Circle K Corporation a convenience food store chain John Clinton Lowry The University of Montana Follow this and additional works at: https://scholarworks.umt.edu/etd Let us know how access to this document benefits ou.y Recommended Citation Lowry, John Clinton, "Growth of the Circle K Corporation a convenience food store chain" (1976). Graduate Student Theses, Dissertations, & Professional Papers. 6135. https://scholarworks.umt.edu/etd/6135 This Thesis is brought to you for free and open access by the Graduate School at ScholarWorks at University of Montana. It has been accepted for inclusion in Graduate Student Theses, Dissertations, & Professional Papers by an authorized administrator of ScholarWorks at University of Montana. For more information, please contact [email protected]. THE GROWTH OF THE CIRCLE K CORPORATION; A CONVENIENCE FOOD STORE CHAIN By John C. Lowry B,S., Tennessee Technological University, 1968 Presented in partial fulfillment of the requirements for the Degree of Master of Business Administration UNIVERSITY OF MONTANA 1976 Approved by; Clhd.rman. Board of Examiners Deanx^radu^tTe"'School ^ / 9 7 / é Date / UMI Number: EP36936 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. UMT OwMTtadlkm F in is h in g UMI EP36936 Published by ProQuest LLC (2013). Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code ProQuest' XT ProQuest LLC. 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 4 8 1 0 6 - 1346 TABLE OF CONTENTS Chapter I. PURPOSE, OBJECTIVES, AND BACKGROUND ANALYSIS OF THE CONVENIENCE FOOD STORE INDUSTRY.................................... 1 II. DESIGN OF THE S T U D Y ............................. 15 III. THE CIRCLE K CORPORATE STRUCTURE.............. 17 IV. POLICY, PROCEDURE, AND EMPLOYEE BENEFITS .... 25 V. FINANCIAL ANALYSIS ............................. 32 VI. SUMMARY ........................................... 42 Appendix 1. GROWTH C H A R T S ..........' ..................... 51 2. GEOGRAPHICAL CORPORATION AREAS.... ............... 57 3. PERSONNEL EVALUATION P O L I C Y ................ .. 64 4. INVENTORY PRICE M A R K U P ........................ 69 5. CORPORATION GUIDELINES AND BREAKEVEN ANALYSIS . 73 6. PRINCIPLES OF SALE/LEASEBACK ..................... 79 7. CONTRACT AG R E E M E N T .................................. 8 5 8. PRO FORMA STATEMENTS OF PRESENT AND FUTURE G R O W T H ............... 100 9. QUESTIONNAIRE ............. 109 SOURCES CONSULTED ........................................ 113 111 CHAPTER I PURPOSE, OBJECTIVES, AND BACKGROUND ANALYSIS OF THE CONVENIENCE FOOD STORE INDUSTRY The primary objectives of this study were: (1) identi fying, (2) describing, and [3) evaluating the various factors which have led to the development and rapid growth of the convenience food store industry with the Circle K Corporation being emphasized and highlighted. The growth and development of the convenient food store industry in the United States has been one of phenomen al proportions. Since its beginnings in the late 1940s and early 1950s, the^convenient food store industry has grown by unbelievable leaps and bounds and now encompasses the entire nation.^ Among the top names in the industry are the South- 2 land Corporation (7-Eleven) with 4,787 stores, Munford, In- 3 corporated (Ma-jik Markets) with 1,151 stores, and the Circle K Corporation with 862 stores.^ Besides these top three ^’’The Circle K Story," Convenience Store Journal 9 (February 1973): 9. 2 "Annual Convenience Stores Franchise Guide," Con venience Store Journal 9 (September 1973): 34-35. ^Ibid. "Circle K Box Score," Counter Talk 10 (October- November 1973): 1. 2 leaders in the industry, there are numerous smaller corpora tions involved in the convenience food store business. It was the purpose of this study to answer the ques tions of why this industry has grown so rapidly in such a very short period of time and whether its growth will be sustained. The rapid growth of the convenience food store industry is evidenced by referring to the growth charts in Appendix 1. These growth charts, which illustrate the growth of the South land Corporation, Munford, Inc., and the Circle K Corporation, are descriptive of the rapid pace at which the convenience food store has become a viable retailing industry in our economy. For 1973, grocery sales increased by 22.5 per cent, and the number of convenience food stores increased by 15.3 per cent to 20,300. The convenience food stores accounted for approximately 3.8 per cent of total grocery sales with the average convenience store having annual sales of $215,000.' Total grocery sales for 1973 were $98 billion with the con venience food store industry accounting for approximately $4 billion of the total,^ The convenience stores developed in the Southwest dur ing the 1930s. They operated on a seven day week basis with operating hours being from seven in the morning until eleven ^"Food Retailing," Standard G Poor's Industry Surveys, (New York, N.Y.: November 14, 1974), p. R172. ^Ibid., p. R166. 3 at night. In return for quick service and long operating hours, the convenience store is able to command high selling prices. Due to the quick rate of turnover and moderate inven tory requirements, the convenience stores earn a substantial- n ly higher return on sales than a supermarket would earn. The rapid expansion of new stores has been aided by the small investment needed and low preopening costs. Over head is not used for large advertising outlays or other pro motional costs. Also, most stores purchase from local whole salers or cooperatives thus eliminating warehousing and g delivery costs. The increasing percentage of the American population living in suburbs has also helped stimulate growth. Thus, the need for a small, convenient, all-purpose retail outlet g is much greater in the suburbs than in the central city. Another important factor is the increase of working housewives. These women have less time to spend shopping in a large grocery store and are more concerned with the ease and convenience of shopping in a convenient food store. This trend is expected to continue through the 1970s. Increased leisure time and recreational activities ex plain the high level of sales on items such as beer (11.5 per cent of sales), soft drinks (9.1 per cent), and snacks (3.3 per cent). This increase is also expected to continue with ^Ibid., p. R172. ®Ibid. ®Ibid. l°Ibid. the advent of the four-day work week and a recreation-minded population. The maps in Appendix 2 present a geographical picture of the states in which the Southland Corporation, Munford, Inc., and the Circle K Corporation operate convenience food stores. Where stores compete with each other in the same state, there are usually covenants between the competing cor porations which give distance restrictions between stores. Circle K competes with 7-Eleven in many states with an agree ment which states that their stores must be built at least 12 one-fourth of a mile from each other. The convenience store started to become a significant factor in American food retailing during the 1950s, It did so by capitalizing on some of the disadvantages of shopping at supermarkets which are listed as follows: 1. Supermarkets are located in busy traffic areas. 2. To get to the supermarket from where they have parked their car, customers often have to walk a long distance. 3. Customers cannot receive personal service in a supermarket because the employees do not know them. 4. Before going to a supermarket, customers often feel they should change into acceptable clothing instead of going as they are to do their shopping. 1 2 Interview with David Barker, Circle K Corporation, Great Falls, Montana, 22 November 1974. 5. Because of the long lines of customers, getting an order checked out in a super market often takes a long time. 6. Customers with small orders often have trouble getting their orders checked out quickly.13 In 1970 approximately 5 per cent or 12,000 of 230,000 retail food stores in the United States were convenience stores. The prediction made for 1975 was for 20,000 conven ience stores to be operating with sales in the neighborhood of $3.5 billion.This prediction was surpassed in 1973.^^ The net profit of a typical convenience store is be tween three and six per cent whereas the net profit for a supermarket is between one and two per cent.^^ In compari son with the big chain supermarket averaging approximately $1.2 million in sales per year, the typical convenience food store averages between $150,000 to $170,000 in sales per 17 year. It should be noted that the average inventory cost for a convenience store is between $10,000 and $15,000 while 18 it is between $65,000 and $70,000 for a supermarket. 13 The Convenience Store: A New Dimension to the Food Industry (Chicago: The Quaker Oats Company, 1970), p . 23. ^‘’ibid. , p. 26. ^ Food Retailing," Standard § Poor's, p. R172. ^^The Convenience Store, p. 65. ^^"The Return of Mom and Pop,” Forbes, 1 July 1969, p . 38. 18 The Convenience Store, p. 54. 6 Most shoppers need to add to their large food pur chases from week to week with items they have forgotten, run out of, or find that they suddenly need. This need is met by the convenient store.